There is an easy option available to avoid the poor mutual fund options that populate the majority of company 401(k) retirement plan menus.
Go online or call your current company 401(k) retirement plan provider. Find out if you have a self-directed brokerage account (SDBA) option available. This “brokerage window” option will allow you to invest in mutual funds, exchange-traded funds (ETFs) and individual stocks and bonds.
Around 40 percent of employers offer self-directed brokerage account options. The surprising number is that only 3 to 4 percent of retirement plan participants with access to SDBA’s actually use this self-directed option.
The main benefit of any self-directed company 401(k) account is that you will have many more investment options available to you. These additional mutual funds can be a very welcome alternative to the high-cost and poor-performing main menu company 401(k) retirement plan mutual funds.
Many of the target date or asset allocation mutual funds that I monitor on the default company 401(k) retirement plan menus for my clients have lagged the investment performance of lower-cost index mutual fund options.
Even more importantly, access to lower-cost ETF’s (exchanged traded funds) in the self-directed brokerage account can significantly lower your company 401(k) retirement plan account annul costs.
There are clearly better-performing and lower-cost investment alternative available to you in a company 401(k) self-directed brokerage account. You just have to take the time to find out if this self-directed option is offered on your company 401(k) retirement plan menu.
For some individual company 401(k) retirement plan participants, the myriad of options available to them in a self-directed brokerage account is overwhelming. That is where the knowledge and experience of an independent, third-party, fiduciary level investment advisor many come in handy.
It is also very important to understand the investment management risks and costs of a self-directed company 401(k) account. There are always additional fees and expenses to consider.
Some 401(k) plans charge an annual maintenance fee for using the brokerage window. It is also necessary to identify if there are any commissions and transaction costs associated with trades made through (SDBA) accounts. Find out about these additional costs when you research or talk to your company 401(k) retirement plan provider.
In most cases, you will find a drop in annual mutual fund expenses when you go outside your core company 401(k) mutual fund menu. This is especially the case when you can find ETF’s that suit your stock and bond market investment objectives and risk tolerance.
Ric Lager
Lager & Company, Inc.
